Cost of living increases by 0.4% in August

THE sharp fall in prices may have come to an end as the cost of living has increased for the first time since September last year.

The latest consumer price index (CPI) figures from the Central Statistics Office found that prices were up 0.4% in August, but down 5.9% in the year overall.

The main drivers of the monthly rise were increases in the cost of clothing and footwear, mortgage costs, petrol and diesel and airlines prices. There were falls in private rents and most food items.

Alan McQuaid of Bloxham Stockbrokers said he was taken “a bit by surprise” at the figures and said the annual rate of price decline is unlikely to go above 6%.

“Still, we remain deep in deflationary territory and there are a number of factors which could influence the CPI either positively or negatively in the coming months,” he said.

In the first eight months of 2009 there was an average decline in headline consumer prices of 3.7% as against an average increase of 4.6% in January to August 2008.

Mr McQuaid said there is likely to be an average fall in inflation of around 4.25% this year compared with an average increase of 4.1% in 2008.

Ulster Bank expects prices to fall by 4.2% for the year, which would represent the greatest decrease since the 6.4% fall in 1931.

Small business group, ISME, said with negative inflation remaining at minus 5.9%, the economy will never be in a better position to realign its cost base with that of its competitors.

“This includes the introduction of pay cuts across the economy. The private sector has already led the way by introducing significant pay cuts in all areas,” said ISME chief executive Mark Fielding.

Mr Fielding said it is “imperative” that the Government address the “bloated public sector once and for all”.

In the food sector biscuit prices were down 2.5% on a monthly basis while oils fell 3.2%, vegetables fell 2.5% and potatoes 3.5%.

Pork prices rose 4.6% and flour rose 1%. Alcohol prices were down 0.1% on a monthly basis, but are up 2.8% over the year.

Clothes and footwear rose 3.4% in the month as summer sales ended but prices are down 13% over the year. Rent costs continued to slide falling 2.4% last month bring the annual decline to 16%.

For the first time in months mortgage costs also rose by 3.4% even though they are down almost 50% on an annual basis.

Petrol prices also rose in August by 1.7%, as did air fares, by 7%.

Meanwhile Retail Excellence Ireland (REI) said just 13% of landlords have offered retailer rent reductions this year despite nearly 90% of Irish retailers requesting respite. REI said that of the 86% of retailers surveyed seeking a reduction, 33% were having their request “considered” and 13% had received an “offer” of reduction.